Finance
An adjustable-rate mortgage (ARM) in Massachusetts has a '5/1' structure. This means:
AThe rate adjusts 5 times in the first year
BThe rate is fixed for 5 years, then adjusts every 1 year✓ Correct
CThe rate is fixed for 1 year, then adjusts every 5 years
DThe loan has a 5% cap on all rate adjustments
Explanation
A 5/1 ARM has a fixed interest rate for the first 5 years, after which the rate adjusts annually (every 1 year) based on an index plus a margin.
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Key Terms to Know
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Math Concepts
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